BusinessPresident Zeman says weak crown could be national bank move to delay the euro

President Miloš Zeman suggested during a press conference following a
meeting with representatives of Czech and Moravian Trade Unions
Confederation (ČMKOS) on Thursday that the Czech National Bank may be
devaluing the crown in order to avoid entering the Eurozone. Zeman has
been
critical of the national bank’s decision ever since it announced it was
going ahead with the weak crown policy last autumn. But his comments have
been dismissed by some economists.

Miloš Zeman, photo: CTK
President Zeman controversially suggested the central bank’s move was a
self-interested step aimed at averting adoption of the euro. “As a
result
of joining the Eurozone the Czech National Bank would lose many of its
competencies to the European Central Bank”, Zeman said.
“While unduly
suspiciousness is not part of my character, I cannot rule out the
possibility that the steps conducted by the Czech National Bank through
the
devaluation of the Czech crown could be motivated by an attempt to extend
the interval before the Czech Republic enters the Eurozone in an attempt
to
keep the competencies it would otherwise have to give up.”, he
stated on
Thursday.

The words were aimed at measures employed by the Czech national bank since
November last year, when it announced its target is of keeping the crown
at
a rate of 27 CZK to the euro, which meant an immediate devaluation of the
crown by 7 percent. The bank says the move was taken to stop possible
deflation which it foresaw in the second and third quarters of 2014, and
argued that the artificial devaluation would also lead to improved
conditions for Czech companies and more jobs in the long term.

During the press conference on Thursday, the head of the Bohemian-Moravian
Confederation of Trade Unions Josef Středula also spoke out against
devaluation, voicing the anger of many of the union’s members at the
seemingly unfruitful move by the National Bank. “When in November
of last
year the intervention by the Czech National Bank happened, we were
promised
it would result in 30 000 job opportunities. So far we know nothing of any
jobs being created from the weakening of the Czech crown. A Czech
labourer’s work is worth more than the 800 euro he gets,” he
added,
highlighting the fact that devaluation has hit salaries already well below
the EU average.

David Marek local director at Deloitte’s financial advisory services
said stated that the concerns voiced by President Zeman and the unions
head
Středula do not correspond economic theory and said the national bank’s
weak crown step was a logical move that was not based on any underhanded
strategy by the bank to avoid joining the Eurozone. “In
fact,” he said,
“it is not just a question of whether the Czech Republic wants to
join
the euro, but also if the Eurozone is interested in welcoming it right
now.
The country is still not close to the euro area’s economic level and
there are other obstacles to the Czech Republic’s readiness to adopt the
euro, such as shortcomings in the flexibility of the Czech labour
market.”

Marek added that it will take time for the positive results of the
devaluation to really kick in.

Zeman has opposed the national bank’s move ever since it announced its
intentions last November. He said then that there was “little
understanding for such a move, which will only serve as a short-time boost
for exporters,” and that, “similar interventions by the
bank only led
to loses in the past.”

The Czech government is in no haste to join the Eurozone any time soon.
Foreign minister Lubomír Zaorálek recently stated 2020 as the most
realistic year for the euro to replace the crown. According to a recent
survey by polling agency Ipsos Tambor, 78 percent of the Czech public
believes it would be better for the country to remain with the crown.